UPDATE 2-Navistar stops shipping diesel engines for Ford
10:37a ET February 26, 2007 (Reuters) CHICAGO, Feb 26 (Reuters) - Navistar International Corp. said on Monday that it had stopped shipping diesel engines to Ford Motor Co. that power the automaker's key F-Series Super Duty pickup trucks because of a contract dispute.
Navistar builds the 6.4-liter Ford Power Stroke diesel engine for the 2008 Ford F-Series Super Duty, a key launch this year for the automaker in its move to rebound from billions of dollars of losses in recent years.
The truck and engine maker said Ford had stopped honoring terms of its agreement with Navistar and it would halt production for the automaker immediately.
"We shipped the last engines to Ford last week," Navistar spokesman Roy Wiley said.
Bear Stearns analyst Peter Nesvold said Ford and Navistar are "tied at the hip," with Ford relying on the Navistar diesel engine and Navistar on the Ford production. If the disruption extends for more than a month, it could lead to an $11.6 billion in annualized revenue loss for Ford, he said.
"While we don't currently expect an extended outage, 30-plus days would be material to both Navistar and Ford," Nesvold said in a note to clients.
Navistar produces about 400 of the engines per day for Ford, down significantly from about 1,060 per day at peak production, Wiley said.
Navistar plans to shut its Indianapolis, Indiana, facility that only produces engines for Ford temporarily, Wiley said. It has 700 workers at the engine plant and 500 at the foundry.
A Huntsville, Alabama, facility also has suspended production of engines for Ford. It also builds engines for other customers and is expected to remain open, Wiley said.
Super Duty trucks are the most popular vehicles in their class, averaging 50 percent market share in the heavy-duty pickup truck segment during the past five years.
Ford sued Navistar in January over warranty costs and engine prices. The automaker had delayed the launch of the Super Duty pickup truck after ongoing problems with Navistar.
Warrenville, Illinois-based Navistar has been the exclusive diesel engine supplier for heavy duty Ford pickup trucks since 1979 through its International Truck and Engine Corp.
Navistar has said it invested more than $100 million in new machinery and other equipment at its manufacturing facilities in Indianapolis and Huntsville to build the new engine.
Navistar shares were down 70 cents, or 1.59 percent, at $43.30 Monday on the Pink Sheets. Ford shares were down 1 cent at $8.29 on the New York Stock Exchange. The NYSE delisted Navistar shares earlier in February because it had missed a deadline for filing its financial reports. (Additional reporting by Poornima Gupta in Detroit and Anthony Kurian in Bangalore)